Guest Post: Named arbitrators – No petition under Section 11 of Arbitration and Conciliation Act, 1996

(The following post is contributed by Ms Renu Gupta, Advocate)

Arbitration
clauses in most contracts with government corporations specify that in case of
a dispute between the parties, an employee occupying a designated post of the
corporation or some other person nominated by him, shall be the arbitrator.

It
is settled law that arbitration agreements in government contracts providing
that an employee of the department will be the arbitrator are neither void nor
unenforceable (see Executive
Engineer v. Gangaram Chhapolia
and Ace Pipeline Contracts (P) Ltd., v.
Bharat Petroleum Corpn. Ltd
). Despite this settled law, there is endless
litigation where private parties resist the appointment of the employee or
person of the government corporation as an arbitrator, in order to seek the appointment
of an independent arbitrator.

In
addition to the settled law which already creates an impediment in the strategy
of the private parties, this article explores another point which reduces their
ability to seek appointment of an independent arbitrator.

Clauses
of the nature discussed above are referred to as clauses with “named
arbitrators”, i.e., the parties have already named the arbitrator when they
signed the agreement, by referring to an ascertainable designation/post. These
clauses have full force of law as was held by the Supreme Court of India in Indian Oil Corporation Ltd. v.
Raja Transport (P) Ltd
. The Court held that where a clause provides for a
named arbitrator, the “courts should
normally give effect to the provisions of the arbitration agreement”
. Further,
referring the disputes to the named
arbitrator shall be the rule
” and the “Chief
Justice or his designate will have to merely reiterate the arbitration
agreement by referring the parties to the named arbitrator”
. It further
clarifies that ignoring the named arbitrator “shall be an exception to the rule, to be resorted for with valid
reasons”
.

Based
on this decision, one could argue that where an arbitration clause specifies a
“named arbitrator”, the stage of “appointment” of an arbitrator is already over/complete
on the date the parties signed the arbitration agreement.

Section
11 of the Arbitration and Conciliation Act, 1996, deals only with “appointment
of arbitrators”. But in “named arbitrator” clauses, if an arbitrator already
stands “appointed”, in my view, Section 11 cannot be invoked for seeking
“appointment” of an arbitrator. Such petitions are nothing more than a
disguised attempt at seeking appointment of an independent arbitrator, thus
deviating from the procedure agreed to originally by the parties in their
agreement.

Taking
this argument to its logical conclusion, if a government corporation wants to
invoke arbitration, it can simply inform the opposite party about its claim
which will lie before the “named arbitrator”, since the stage of “appointment”
is already past and the next stage is merely the arbitrator entering upon
reference and initiating proceedings.

Several
decisions of the Supreme Court (see Northern
Railway Administration v. Patel Engineering Co. Ltd
)
, deal with
situations where despite “named arbitrator” clauses, one party invokes Section
11 for “appointment” of an independent arbitrator. Based on the decision in
Indian
Oil Corporation case
, in my view, the only situation where despite a “named
arbitrator” clause, Court in a petition under Section 11 could appoint any
other person as an arbitrator is
where circumstances exist, giving rise to justifiable doubts as to the
independence and impartiality of the named arbitrator
and reasons will have to be recorded for
ignoring the “named arbitrator” and appointing someone else. Mere allegations
of bias and partiality of the “named arbitrator” merely because he is an
employee of the government corporation are not sufficient.

About the author

V. Niranjan

3 comments

  • Spontaneous
    “…..courts should NORMALLY give effect…”, “ignoring the named arbitrator “shall be an exception to the rule, to be resorted for with VALID reasons”. The marked words (FONT) are, in one’s longstanding conviction, are dubious concepts , rather vulnerable, having every potential to provide ample scope for leaving such disputes wide open to eternity; and for lawyers to try and distinguish everyone case from the other. So much so, court litigation, to the delight of the profession but to the chagrin of the contracting parties, is left the most certainty as ice age (to be precise, as polar ice or an ‘icebound’ ship!)

  • To put it point-blank /forthright, with courage of conviction to face the truth, if closely read, such write-ups, of the "run -of -the- mill" kind, merely reviewing case law, that too in a superficial style, do not lend any credence to the concept of 'arbitration'; on the contrary, contribute to ridiculing the very concept. Thereby, help in betraying the futility of the whole exercise centred on what was originally conceived as a desirable alternative to the always dreaded 'court litigation'.
    Anyone truly desiring to try and bring back to the said concept its original glory of commendable purpose, might do well to first make a study of certain fundamentals clinching the concept.
    One such material, among numerous of them in public domain, to begin with, is HERE (link) >
    "General Arbitration Concepts and Alternatives"

  • Ms. Renu Gupta,

    Your first point has been accepted and pronounced by Supreme Court repeatedly and it is clear that named arbitrators can be legally appointed by government companies.
    However, I express humble disagreement with your second argument firming up foregone/ established conclusion regarding Non-maintainability of Section 11 petition in High Court/ Supreme Court (as applicable).

    We should appreciate that in law certainty and appointment are polar opposite states notwithstanding that non-legal world hardly spots the significant difference. In present context, naming an arbitrator may not result into appointment of such person in all possibility. (A) The two parties may agree on another junior or senior officer, or specialized officer to be appointed as arbitrator. (B) That post no longer may exist in the government company. (C) Force Majeure events related to arbitration agreement may happen. (D) The named arbitrator may herself specifically abdicate from arbitration duty while discharging other official duties(E) Parties may recuse the named arbitrator on statutory grounds. (F) When will period of 30 days start if one arbitrator is to be appointed by each party as no notice of appointment would be given. (G) When will commencement of arbitration take place as no notice of appointment would be required to be given. In addition to accepted view that named arbitrator is also required to be appointed, above seven points raise logical inconsistencies in scheme of arbitration if it is held that a named arbitrator is not required to be appointed.

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